One consensus so far from the World Economic Forum is an unsurprising one: The global outlook is better this year than last.
I found a perversely upbeat assessment of the economy today when I talked to Kenneth Rogoff, the Harvard economist who co-wrote the well received tome “This Time is Different: Eight Centuries of Financial Folly.” I asked him the same open-ended question I’m asking everyone in Davos: What’s the biggest risk you see in the world? “Geopolitical,” was his response. Fears about Iran getting nukes or North Korea going nuts concern Rogoff more than any single economic issue.
This is saying something. When the man who crunched data on hundreds of years of economic screwups says the economy isn’t his biggest concern, that praise may be weak but it’s still praise.
Not that Rogoff is exactly upbeat. He thinks the Europeans are kidding themselves that they will be able to get out of their debt crisis without massive defaults and restructurings. “No way it gets solved in March,” he said, when European finance ministers plan to meet. Even a typical U.S. Recession results in corporate bond defaults in the neighborhood of 10% by value. Yet Europe thinks these kinds of defaults are avoidable and Rogoff isn’t buying it. Restructuring requires a process, he said, and the Europeans don’t have one.
So will Europe’s problems derail the global economic recovery? Good news again. Reflation, said Rogoff, is inevitable with all the stimulus the U.S. Government has supplied and considering how low the economy fell.
In short, Rogoff still sees folly aplenty. But alongside it he sees growth, at least in the U.S.